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By: Rory Gallaher, Deacons
Under the revised Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, which is scheduled to come into effect on 6 April 2019, intermediaries must determine whether a product they are selling is a complex product. If a product is a complex product, an intermediary cannot sell it to an individual investor, whether a professional or not, unless the intermediary is satisfied the product is suitable for the client. The obligation arises even in the case of an execution-only transaction. The only investor categories to which the suitability obligation does not apply are "institutional" professional investors such as banks, insurance companies and fund management companies, and consenting corporate professional investors which have a dedicated investment function or independent advisor (eligible corporates).
Managers of hedge funds (and other unauthorised funds) who sell directly to investors need to determine whether their funds are complex products. If they sell through private banks or other distributors, they need to be ready to answer questions from their distributors as to whether their funds are complex products (although the person selling the product is ultimately responsible for determining whether the product is complex).
In making such determination, intermediaries are required to exercise due skill, care and diligence having regard to whether: |
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